Indeed !

The owners of most of the Dash supply vote to have even more of the new supply donated to them.

Well thought through economics which should attract back valuable marketcap that's been lost to our competitors. (Because, hey - masternodes just never were paid enough for doing nothing and the rewards were going to the wrong people ! )

Really ? I think I'll just leave that assertion to stand on its own merits (or otherwise   ).


Dash has been around for nearly 6 years and I do think its characteristics are quite widely understood. I also think they're well researched by any serious investors that plan to acquire large amounts, as say, fund managers might. While "wash trading" does go on it affects volume more directly over marketcap and occurs across all markets. It isn't the reason for Dash's loss of ranking.

Most of all, I don't think we're at liberty to cite "market ignorance" as a justification for our lack of competitiveness when there are much more obvious causes to which this can be attributed.


I'm not sure what you think this article demonstrates, but it's a commentary on dip buying. It shows how hashrate/difficulty cycles can be used to identify optimal entry points to the bitcoin market and that maximum gain is made over periods of highest hashrate growth.

Nowhere does it allude to the idea that cheaply secured networks attract more value than blockchains which subject all of their blocks to competitive mining.

For a more instructive example of how these price dynamics work, I suggest you take a look at the fine art market. The fine art market works EXACTLY like mined cryptocurrencies in certain key respects. In particular, with regard to establishing a "starting price" for the block. As the secondary market grows, it also feeds back to the primary except the artist will put their prices UP, not down for new works. If the artist decides to give half their supply of new works away for free, the secondary market isn't going to save them. Investors will simply pick artists who don't do that over ones that do.

Moreover, cryptocurrency mining establishes the "starting price" for the next block with even more authority than the fine art market does since no single person sets it, rather it's set competitively by the consensus of many participants.

Masternode revenues are not subject to competitive mining and therefore emerge with a zero cost base (and consequently zero opening price to the recipient who's then at liberty to profit-take all the way to zero. There's no penalty for selling since no loss to take for liquidating below market value). Alternatively you can take the approach that their "cost' is covered by mining cost in which case this analysis applies.

Either way the margins are a free lunch which is not sustainable in dollar terms and sets up unfavourable capital flows away from us towards competing, 100% mined coins. We can retain the best of both words by rethinking things but as they say, "beatings will continue" in terms of our competitiveness until we acknowledge this IMO.

This cult talk, not investment talk. Blind allegiance in place of critical appraisal. We're 6 years in. What's you're idea of "long term" ? Decades ?


Why is this such a big deal ? The project has lost so much competitivity already.

We are just above 1/5th of Litecoin's marketcap. One half of Monero's (after having been consistently 3x to 5x theirs). Even Ethereum's failed fork has attracted more relative value.

Maybe you should take a moment to reflect on that and demonstrate some humility when it comes to entertaining a re-appraisal of the core principles that we took for granted would make this asset more investible. Whittling away contrarians year after year isn't doing Dash any good.

The split-reward mechanism isn't working as intended when it comes to competitiveness in the investment market. Face it and start embracing some alternative views. Doesn't mean the principle's wrong, it's worked well in certain aspects such as funding DCG and boosting the technical performance of the network. But the economics of it are not well tuned and the huge masternode margins (in Dash terms) are easily characterised as wasteful from a casual outside investor's perspective. Also doesn't mean that the analyses I've presented are necessarily bullet proof or beyond criticism. But the current proposal isn't going to turn anything around. It's simply an achingly slow increment of what we already have. @babygiraffe doesn't even seem all that confident about it himself to me, hence his very conservative approach to implementing it. Nor did the wider market when it was originally announced. A more radical re-appraisal is needed IMO.

That isn't a cost, it's a capital investment and so cannot be offset against the operating revenue of a masternode. It doesn't affect the margin. There are no hidden costs (I know cos I've run one for years) apart from the capital loss incurred when the market devalues the coin. That's how it can destroy these margins if we fail to put them to good use. Which would be either:

 • protecting a larger proportion of the coin supply scarcity with competitive mining (restoring mining reward) or
 • having masternodes invest a large part of the margin back into the network in some service provision capacity


This depends on how you denominate the "rewards". Since Dash isn't a stablecoin the reward is dependent on the exchange rate. At its peak, the masternode reward was around $83k per projected annum. Right now it's around $5k per annum. I ask you the same question: "why would anyone hold a masternode when the potential capital loss far outweighs the reward itself ?"

The idea is that by restoring the mining reward we'd become more competitive in terms of investment (by needing to draw less capital from fiat markets as I've outlined in other posts) and restore price growth. This would INCREASE (dollar denominated) masternode rewards, not decrease them.

I realise this conclusion is counter-intuitive but it's rational all the same when you work through things on a fiat measured basis and consider the cryptocurrency market as a whole rather than simply draw a line around Dash miners and masternodes. It's at least as justifiable as the "shot in the dark" that's being taken now - IMO more so since it's based on known quantities and relationships rather than on speculated ones.

It also has observable evidence on its side while the current proposal does not. 10% change may not seem much but the problem is it's in the wrong direction and we're already suffering enough from loss of marketcap share.

There are 3 groups of voters to be convinced here, not just 1:

 • masterndoes
 • non-masternode Dash holders (who vote in markets)
 • non-Dash holders (who vote in markets)

Convincing the first group is not enough. Their interests may or not be in conflict with the other 2 so people need to be slightly more sophisticated and not think like a turkey. I know what I will vote and which of those 3 groups I need to appeal to, unfortunately it's not the popular option. Which one of us ends up the turkey, only the second & third of those groups can decide.

******************************************

Fork it.

I think DCG should just fork the code. One at 30% mining reward and the other at 70%. Then let the miners & market discover which priority is more valuable. It would be an amazing experiment and worthwhile because it would empirically prove one or other priority as viable with market endorsement. A "controlled burn" version of the Ethereum fork minus the community contention. All current investors would be on both sides anyway and it would be a piece of research that's pioneering, instructive and at the same time would generate media interest and ultimately investment as people bet on one side or the other.

I've always supported the idea of incentivised nodes, in fact it's why I invested in the first place. But it's a question of degree.

I didn't think too much about it until this proposal came up, in fact when DCG presented the idea in December.

If you're a crypto person, you tend to get used to the idea that coins just "pop" out of the blockchain with value attached.
If you're an economist you're also quite comfortable with the idea that "money printing" has a viable basis.
But if you're a bookkeeper and you see revenue then you're always looking for the other side of the entry to see where the expense is and whether it's viable. (I'm not a bookkeeper, just half a lifetime of building accounting systems in software for businesses).

This set me off down the path of actually thinking about the mining business model and accounting for the various capital flows. To me crypto isn't inherently valuable. It has value because it catalyses capital flows between real people in the real world. In doing that I came to the conclusion that the problem has been inadequately framed (in terms of minimising the flow of Dash denominated mining rewards to market) and when you frame it more completely you come to the opposite conclusion: that all of the primary supply is always sold regardless of relative reward ratio. Further, that the masternode margin causes us to have to draw a lot more fiat from markets than Bitcoin and Litecoin et al do for the same proportional supply production.

See for example for a different way of looking at it: https://bitcointalk.org/index.php?topic=421615.msg54754054#msg54754054

I was also very skeptical of the assertion that "we don't need all this hashrate". I think we're about to find out that we do - or at least we need a large part of our supply to be as competitively mined as possible if it isn't doing some other job that delivers measurable value back to the investor.

Saying we have "value added" features like instantsend and privatesend is true but not really relevant to the economics of things. These features don't cost the masternodes anything to support relative to the revenue they draw from the network. Even just intuitively, margins like that are not sustainable - in any business. You end up paying for it somewhere and I've shown in other posts the possible mechanics by which we end up paying for it in chronic loss of marketcap share.

Most of all I'm gobsmacked at the lack of effort to explain or account for the reason that the split reward ratio has not made us more competitive compared with our 100% mined counterparts. The evidence is there staring us in the face. They have BOTH more mining reward (which we claim is our problem) AND less functional versatility (which we claim is our strength). Yet we choose to ignore this and are now doubling down on more of the same, citing arbitrary excuses such as "too much supply growth", "first mover advantage" or "market bias" obstructing our growth. These are not adequate explanations IMO. Anything except consider that the mining business model might actually have a basis to it in stabilising the asset as a store of value or that expensive masternode margins may be leeching out or competitiveness from the investment market's perspective.

I find that reckless.

Most of mining turnover is cost so very little proportionally is taxable. (Assuming mining at a profit. None is if mining at a loss).

Masternode margin over cost is near 100% so it's almost all taxable.

One of the nice things about the new reward ratio is that it now exposes over half of Dash's entire primary supply to statutory taxation.

This will assist governments with rebuilding their fiat economies.

So notwithstanding nodes in crypto fiscal paradises, that's up to $160k per week that needs to get dumped purely to cover the tax bill on the new supply. $8 million per year at current prices. As the price goes up, so does the tax bill.

Unfortunately our 100% mined counterparts are not similarly exposed and so they will not be assisting their tax authorities to the same extent.

Not necessarily. "Pushed theories" account for 2 categories of asset as described at the end of this post: Ether is a computing platform and has a different monetary basis from Dash or PPC.


That's the only explanation I can see for this craziness, why everybody is voting for it and why nobody can adequately defend the logic behind it.

They all want out on the next pump.

No worries. I'll be joining them.

Imagine bitcoin hits $200,000.

That would value a Dash masternode at a $1.5 million at the current ratio. Masternode revenue for a single node at $2200 per week and for the whole network at $10 million per WEEK.

In macro bookkeeping terms, one entity's income is another's expense. Doesn't matter if they sell or not.

There is not a snowball's hope in hell of that ever happening. The market will simply drastically discount Dash's capital value compared with full mining reward counterparts. There are only 2 ways to avoid this:

1. if the most of the masternode revenues were somehow ploughed back into the network in a way that added equivalent value to the coin over competitors

2. if the masternode margins were cut by way of restoring mining reward ratio

As things currently stand we're on a slow bleed of capital from Dash to competing mined assets and that's only going to be doubled down on with the current proposal. We'll be at 760 sats, not 7600.

Is this a joke quizzie ?

Dash could hit page 3 on CMC at 10k sats and still have 5000 masternodes, just not with the same owners as when they cost $1 million a pop.

Nor is nodecount a guide to effectiveness as a store of value. Ranking is because it measures Dash's performance relative to similar assets with a different monetary protocol.

No. Because masternodes are no different from any other part of the supply. They might hold under one set of circumstances and sell under another. Dash supply is not "locked up in masternodes", it never was because no-one in their right mind would hold onto such a huge capital loss in a bear market, while in a bull market the principal attraction is capital gain, not fixed income so entire nodes will get dumped at the top of a rally. The only people that hold through both are Dash tribalists who do not represent the wider economic landscape.

Masternodes as an asset are threatening to move towards a POS type model which would be a disaster IMO. It is toxic for us.

Imagine there's a sandpile that weighs 1 tonne and you own 1000 sandgrains of it which weigh together 1 Kg. So you own 1 kilo of sand.

But you're only interested in how many sand grains you have, not what their weight is. Meanwhile, non-holders are only interested in the weight, not the number of sandgrains.

So, since you value only the sand-grain count, the sandpile offers to pay you an additional 100 smaller sand grains every year in exchange for not selling your sand. But at the same time, it makes all the sand grains you already owned smaller as well, not just the new ones. So at the end of the year you have 1100 sand grains.

But you still only own 1 Kilo of sand.

This is how proof of stake chains work. Cutting the same cake into ever smaller pieces hoping that their holders will value their holding higher.

It's the same principle by which fiat money works - re-denomination of the same asset base. It's also the principle that informs the current proposal to change Dash's monetary protocol: less scarcity at a high cost base, more free money at a low cost base. Always the "trained economist's" reflex response to a crisis. Taken to its logical conclusion, eventually ends up in a stablecoin. (Bitcoin/POW does not work like this. You want another block ? Mine it and compete with everyone else that wants it).

The only way that this kind of asset is investible is if the non-mined element contributes equivalent measurable added value in some way.

But Dash does not fulfill that requirement. How could it when all of the staking revenue - already representing half the supply - has a zero cost base ? Now it seems Dash is also on the verge of declaring it doesn't even want to protect the scarcity of its primary supply with competitive mining any more.

What is there left for an outsider to invest in ?

So capital therefore moves to these 100% competitively mined chains if it wants scarcity...

...and these arbitrarily spawned tokens if it wants to invest in decentralised utility.



          |
          |
          V

Same sandpile. Smaller sandgrains. More of them.



This wasn't the original founder's idea of Dash's monetary model.

It would look as described in the closing remarks of this post.

Justified by the observations made in this one.


The DCG proposal isn't concerned with the existence or non-existence of masternodes, it's concerned with changing the reward ratio away from miners and towards masternodes. I would not get rid of masternodes and have never argued for that. I've only argued that if the masternode reward goes beyond a measurable added value to the coin from a new invstor's perspective, then capital will move away from Dash to its fully-mined competitors.

I've also argued that for Dash to be to be investible, the masternode operating margin and mining operating margins need to be congruent, otherwise the market will simply revalue the coin until they are. This is what's been happening over the last few years when you compare Dash's relative value with its (former) competitors.

I say "former" because they no longer need to regard Dash as a competitor. They've remained in the top 20 by marketcap while we have not so it's us that have the re-examining to do, not them. We've had a 40%+ deficit on mining reward during that time. Increasing it to a 50% deficit as a solution doesn't exactly strike me as a "re-examination" of priorities and I don't think the wider market will see it as one either.

Couldn't you apply that logic to just about any top 20 coin from December 2017 ?

If your protocol gives half the supply away for free while competing ones restrict theirs to competitive mining, expect the market to value it accordingly.

FIFY.

We don't care about what the market votes for around here.

It's what the masternodes vote for that matters.

(Nor do we want any of the market's expensive hashrate anymore. We gox chanelox. Cheap as chips )

Of course an average "investor doesn't care" about the inner distribution. The question is rather, how does reducing the mining reward reduce the aggregate mining cost passed on to the market ? That's the aim of the DCG proposal. (Although it's stated in terms of miners supplying less Dash to the market but actually, to be consistent with their premise that miners sell to cover costs, it should be restated as "drawing less fiat from the market").

Mining costs are denominated in fiat (because electricity companies). Therefore it's the fiat cost that's passed to the market to pay. To achieve the objective of "drawing less fiat" therefore the mining costs would have to be less (in relative terms). For the mining costs to reduce, competition for the next block would have to also reduce. That only happens when demand for the coin overall reduces, not necessarily by changing the reward ratio. (As quizzie has most helpfully pointed out above).

In my observations, a reduction in reward ratio does not manifest in reduced aggregate mining costs. Instead it manifests in reduced marketcap share and reduced capital influx relative to 100% mining reward coins. In other words less competitive as an investment.

Since the market (miners or investors) covers the mining cost but only receives partial supply, it reacts by devaluing the balance of the supply it doesn't receive, since this represents the supposed "value added tax" to pay for the masternode network. It can do this happily without masternode revenues becoming unprofitable (they're at near 100% margin). Even miners can stay viable via difficulty adjustments if necessary. The only aspect that loses out is the capital value of our holdings. That decreases relative to competing 100% mining ratio assets.

When I say "devalue" I don't necessarily mean devalue in absolute terms but relative to competing mined chains. That's why ranking IS important. Not per se, but because it shows up the opportunity cost of our protocol decisions such as reward splits.


There's some commentary about this back here. See from "consider why bear markets happen". Also here on the problem of distinct groups of holders at different cost bases and chronic "profit taking".

Well at least you have evidence on your side since all high 100% mining reward coins have become less valuable while all the low mining reward ones have risen to the top, haven't they.

...because giving away coins for free rather than having them competitively mined makes for such a great store of value !

oops  

Because I thought Dash did too. But maybe I was wrong.

Maybe it's not in the business of building a competitive monetary asset but rather just a useful piece of software for people that need "cheaply secured networks".

Nice !

You're making the case for building a cheaply secured, cheap to use technology network who's token value is...eh...cheap ! (Kind of like the logic that says make knives and forks out of steel instead of gold because or use SQL server instead of bitcoin as a database because...hey..."the value's in the utility !").

Good to know that you don't care about marketcap or ranking either because as the market prices in the new "monetary protocol" we're currently heading into oblivion on that front and our epitaph will read...."we don't need all this hashrate".

Here's to the banana skin. (Avoiding it  )